Market Analysis

Beyond the Number

Tech Stocks May Help Lead Early Rebound On Wall Street
5/5/2021 8:40 AM

The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to move back to the upside after ending the previous session mostly lower.

Technology stocks may lead the way higher after coming under pressure on Tuesday, as the Nasdaq 100 futures are showing a notable advance.

The tech-heavy Nasdaq showed a steep drop in the previous session, tumbling to its lowest closing level in a month after reaching a record intraday high last Thursday.

A positive reaction to better than expected earnings from companies like Activision Blizzard (ATVI) and Lyft (LYFT) may contribute to the early upward move.

Shares of General Motors (GM) may also see initial strength after the auto giant reported first quarter earnings that came in well above analyst estimates.

A number other well-known companies have also reported better than expected quarterly results, extending the upbeat trend seen throughout the current earnings season.

On the U.S. economic front, payroll processor ADP released a report showing private sector job growth accelerated in the month of April but still came in below economist estimates.

Stocks moved mostly lower during trading on Tuesday, with the Nasdaq showing a particularly steep drop amid weakness among technology stocks. The narrower Dow managed to buck the downtrend, however, as the blue chip index inched higher over the course of the session.

After plunging by nearly 350 points in morning trading, the Dow ended the day up 19.80 points or 0.1 percent at 34,133.03. Meanwhile, the Nasdaq tumbled 261.62 points or 1.9 percent to 13,633.50 and the S&P 500 slid 28.00 points or 0.7 percent to 4,164.66.

The weakness on Wall Street largely reflected a continued pullback by technology stocks, as reflected by the steep drop by the Nasdaq.

The Nasdaq reached a record intraday high during trading last Thursday but has pulled back sharply since then, falling to its lowest closing level in a month.

Traders may be cashing in on tech stocks that benefited from the coronavirus-induced lockdowns as more states continue to lift restrictions.

Additional selling pressure was generated in reaction to comments from Treasury Secretary Janet Yellen, who suggested interest rates may have to rise modestly to prevent the economy from overheating amid the recent spike in government spending.

"Even though the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates," Yellen said at The Atlantic's Future Economy Summit.

"But these are investments our economy needs to be competitive and to be productive," she added. "I think our economy will grow faster because of them."

The comments from Yellen come even though the Federal Reserve has repeatedly indicated interest rates are likely to remain at near-zero levels for the foreseeable future.

Concerns about the near-term outlook for the markets may also have weighed on Wall Street, as some analysts have warned the markets have come too far too fast in light of the ongoing pandemic.

Most major companies have reported better than expected quarterly results this earnings season, but buying interest has been somewhat subdued amid worries about valuations.

Meanwhile, the uptick by the Dow partly reflected strong gains by Dow Inc. (DOW) and Caterpillar (CAT), which helped offset steep losses by Apple (AAPL) and Microsoft (MSFT).

In U.S. economic news, a report released by the Commerce Department showed the U.S. trade deficit hit a new record high in the month of March.

The Commerce Department said the trade deficit widened to $74.4 billion in March from a revised $70.5 billion in February.

The trade deficit was nearly in line with estimates, as economists had expected the deficit to widen to $74.5 billion from the $71.1 billion originally reported for the previous month.

A separate report from the Commerce Department showed new orders for U.S. manufactured goods rebounded slightly less than expected in the month of March.

Airline stocks showed a significant move to the downside on the day, resulting in a 2.5 percent nosedive by the NYSE Arca Airline Index.

Considerable weakness was also visible among biotechnology stocks, as reflected by the 2.2 percent slump by the NYSE Arca Biotechnology Index.

Networking, software and computer hardware stocks also saw notable weakness, contributing to the steep drop by the tech-heavy Nasdaq.

On the other hand, steel stocks moved sharply higher over the course of the session, driving the NYSE Arca Steel Index up by 2.1 percent to its best closing level in nearly ten years.

Banking stocks also turned in a strong performance on the day, with the KBW Bank Index climbing by 1.4 percent to a record closing high.

Commodity, Currency Markets

Crude oil futures are climbing $0.80 to $66.50 a barrel after jumping $1.20 to $65.69 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,776.10, up $0.10 compared to the previous session’s close of $1,776. On Tuesday, gold slumped $15.80.

On the currency front, the U.S. dollar is trading at 109.36 yen compared to the 109.33 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1995 compared to yesterday’s $1.2014.


Asian stocks ended mixed in thin trading on Wednesday after U.S. Treasury Secretary Janet Yellen noted that interest rates will have to rise somewhat to make sure that the economy doesn't overheat. Yellen later clarified the comments and said she was neither predicting nor recommending a rate increase.

Japanese markets were closed for a third straight day for Children's Day. China was also closed for Labor Day, while South Korea was closed for Children's Day.

Hong Kong's Hang Seng Index dropped 139.16 points, or 0.5 percent, to 28,417.98. Hong Kong's private sector continued to expand in April, albeit at a slower pace, the latest survey from Markit Economics showed, with a services PMI score of 50.3, down from 50.5 in March.

Australian stocks rose for the third straight session, with rising commodity prices and dovish comments from RBA's interest rate decision boosting sentiment.

The benchmark S&P/ASX 200 Index ended up 27.90 points, or 0.4 percent, at 7,095.80 after touching a new 14-month high of 7,122.00 earlier in the day. The broader All Ordinaries Index rose 20.70 points, or 0.3 percent, to 7,344.20.

Mining heavyweights BHP and Rio Tinto rose over 1 percent. Gold miners ended broadly lower. Tech stocks also succumbed to selling pressure, with Appen, Afterpay and WiseTech Global losing 1-3 percent.

Energy stocks finished modestly higher as oil extended overnight gains. Lender ANZ lost 3.2 percent despite more than doubling its first-half cash profit.

Nearmap surged 14.6 percent after the aerial mapping firm upgraded one of its key financial metrics - annual contract value - for the 2021 financial year.

In economic news, data on the country's services and construction sectors mostly painted a positive picture of the economy.

New Zealand shares ended lower as strong job data boosted the kiwi dollar against all its major rivals and weighed on exporters.

The jobless rate came in at a seasonally adjusted 4.7 percent in the first quarter of 2021, while analysts had expected it to hold at 4.9 percent.

The benchmark NZX-50 Index fell 63.88 points, or 0.5 percent, to 12,848.31. Shares of Fisher & Paykel Healthcare declined 2.8 percent.


European stocks have moved sharply higher on Wednesday after data showed Eurozone private sector growth continued for second consecutive month, as manufacturing and services industries expanded.

The IHS Markit composite purchasing managers' index rose to 53.8 in April from 53.2 in March. That was slightly stronger than a preliminary reading of 53.7.

Sentiment was also underpinned after U.S. Treasury Secretary Janet Yellen downplayed earlier comments that rate hikes may be needed to stop the economy from overheating.

While the German DAX Index has surged up by 1.6 percent, the U.K.’s FTSE 100 Index is up by 1.3 percent and the French CAC 40 Index is up by 1 percent.

German logistics company Deutsche Post jumped has shown a strong move to the upside after raising its operating profit forecast for 2021.

Fashion house Hugo Boss has also surged. The company expects to double sales and remains optimistic of generating a positive EBIT in the second quarter.

Rio Tinto, BHP Group, Glencore and Anglo American have also jumped in London as copper prices rose past a key psychological level of $10,000 a ton, supported by prospects for higher demand.

Danish wind turbine company Vestas Wind Systems has also soared after narrowing its first quarter loss and maintaining FY21 views.

Shipping company Maersk has also shown a notable move to the upside after it reported record earnings in the first quarter.

Stellantis NV, the new auto group formed from the merger of Fiat Chrysler and PSA Group, has also rallied after reporting better than expected quarterly revenue.

Meanwhile, McBride shares have plunged as the cleaning products supplier downgraded its annual earnings guidance, citing rising input costs and weaker sales.

Daimler has also dropped after Nissan Motor decided to sell all 1.54 percent of shares in the German carmaker owned by Renault Motors in France.

Delivery Hero has also tumbled after former owners of Woowa Brothers sold shares worth about 1.25 billion euros ($1.5 billion) in the online food ordering company.

Resource management firm Veolia Environnement has also moved lower, giving up initial gains. The French company said it is ahead of 2021 objectives and plans to recover the pre-crisis dividend policy in 2021.

U.S. Economic Reports

Private sector job growth in the U.S. accelerated in the month of April but still came in below economist estimates, according to a report released by payroll processor ADP on Wednesday.

ADP said private sector employment spiked by 742,000 jobs in April after surging by an upwardly revised 565,000 jobs in March.

However, economists had expected private sector employment to soar by 800,000 jobs compared to the jump of 517,000 jobs originally reported for the previous month.

Chicago Federal Reserve President Charles Evans is due to speak on current economic conditions and monetary policy before the virtual 29th Annual Hyman P. Minsky Conference on the State of U.S. and World Economies.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on activity in the service sector in the month of April.

The ISM’s services PMI is expected to inch up to 64.3 in April from 63.7 in March, with a reading above 50 indicating growth in the sector.

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended April 30th at 10:30 am ET.

Crude oil inventories are expected decrease by 2.2 million barrels after inching up by 0.1 million barrels in the previous week.

At 11 am ET, Boston Federal Reserve President Eric Rosengren is due to speak before a virtual “Post-Pandemic Trajectories: What Comes Next for the Economy and Monetary Policy?” event hosted by the Boston College Carroll School of Management.

Cleveland Federal Reserve President Loretta Mester is scheduled to speak on the economic outlook before a virtual Boston Economic Club Luncheon Series at 12 pm ET.

At 3 pm ET, Chicago Fed President Charles Evans is scheduled to give opening remarks before a virtual “Brighter Prospects for Chicago's Youth: Strengthening Summer Jobs and Beyond” forum.

Stocks In Focus

Shares of Tupperware (TUP) are moving sharply higher in pre-market trading after the storage products maker reported first quarter results that exceeded analyst estimates on both the top and bottom lines.

Office Depot parent ODP Corp. (ODP) is also likely to see initial strength after reporting better than expected first quarter earnings and announcing plans to separate into two independent, publicly traded companies.

Shares of Caesars Entertainment (CZR) may also move to the upside after the casino operator reported a narrower than expected first quarter loss on revenues that exceeded estimates.

On the other hand, shares of WestRock (WRK) are likely to see initial weakness after the corrugated packaging company reported weaker than expected fiscal second quarter earnings.
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